WASHINGTON--The Concord Coalition warned today that the 2002 Social Security
and Medicare Trustees Reports released this week
reaffirm that both programs are on an unsustainable course - despite three
additional years of trust fund solvency for Social
Security and one additional year of solvency for Medicare. The future is even
more problematic because the President and Congress
are again spending near-term payroll tax surpluses of both programs rather
than saving them for the long-term financing gap.

“It means nothing to build up a bigger stack of Treasury IOUs when we are
doing so little to help future generations afford the cost of
paying them off. Unfortunately, with the budget headed back into deficit
and reform of Social Security and Medicare on the back
burner that is exactly what's happening - bigger debts and squandered surpluses.
The overall challenge has not changed. What has
changed is that we are back to spending the Social Security and Medicare
surpluses on other government operations. This amounts to
a breach of faith, not with the elderly who are already receiving
benefits, but with working-age men and women who are now paying
about $600 per worker more in payroll taxes than are needed to fund every
penny of benefits. We should not pretend to save this
money for tomorrow by crediting IOUs to a government trust fund while we use the
cash to give ourselves bigger government and lower
taxes,” said Concord Coalition Executive Director Robert Bixby.

The Concord Coalition has consistently warned that trust fund solvency is a
false indicator of Social Security's and Medicare's fiscal
outlook because it is unrelated to the cost of future benefits or to the
manner in which sufficient resources will be found to afford this
cost. According to the Trustees report, the cost of Social Security and
Medicare will grow from nearly 7 percent of the economy
today to over 12 percent by 2040. Also by 2040 the share of general
revenues needed for Social Security and Medicare will grow to
over 40 percent. Fiscally and economically, what matters is not the trust
fund balance but the operating balance - that is, the annual
difference between outlays and dedicated tax revenues. For example, in
2040 the Social Security trust fund is projected to be fully
“solvent.” But in that year alone the program will need a general revenue
infusion of about $360 billion in today's dollars to redeem its
dwindling supply of Treasury bonds. That amount is more than the entire
2001 budget for national defense. Closing the gap in 2041
upon trust fund bankruptcy will require a payroll tax hike of more than
one-third or a benefit cut of 27 percent.

“These programs must not be viewed in isolation, either from each other or
from the overall federal budget. The same bonds that are
assets for Social Security and Medicare are liabilities for the Treasury.
Once the cash flow turns negative, in 2017 for Social Security
and 2016 for Medicare Part A, the Treasury will have to begin redeeming
the trust fund bonds by raising taxes, cutting other programs,
or running up the public debt. This will cost over $8 trillion in today's
dollars through 2040. Our focus must be on how much these
programs are going to cost over the long-term and how future taxpayers
are going to pay for them. Trust fund solvency does not
address either of these key issues. It is simply a matter of government
bookkeeping. The bottom line is that it will take a combination
of fiscal discipline and cost saving reform to put Social Security and
Medicare on a sustainable path for all generations. Policymakers in
Washington are not pursuing either strategy. They are pursuing the Do
Nothing Plan,” Bixby said.